In the face of unmetered innovation across multiple industries, the banking industry has been rather quiet. For centuries, the banking industry has gone unscathed by the unrelenting tides of change. People still queue in banks to perform the simplest transactions. Appending the wrong signature on a check or form can lock you out of your bank account - or at the very least, turn your day into a nightmare.
Thankfully, there are positive signs that the industry is slowly undergoing a transformation. Big data is one of the central elements that are driving this transformation.
Banks and other financial institutions have always had access to troves of data, but lacked the necessary tools to make any sense out of it. But with advances in big data analytics, financial institutions are breaking new ground and using big data to make critical financial decisions that would otherwise not have been possible.
Here’s how banks and financial institutions are using big data to drive growth and innovation in the industry.
1. Real-time decision-making
Historically, financial institutions have been collecting data in the form of addresses, names, and demographic data from credit cards, loan applications, and bank accounts. But without the necessary analytical tools, such data only sat idly in storage servers and local storage servers.
In recent years, however, banks have been using advanced analytics to aggregate real-time processes and data to make instant decisions. For instance, banks and other financial institutions are building systems that aggregate customer data to help make credit decisions almost instantaneously.
2. Enhanced customer service
Customer service has become an important facet of modern-day financial institutions. Unlike previous decades where customers were begging to open an account with a bank, banks are now forced to actively look for customers and satisfy existing ones because of competition.
Banks and other financial institutions are using insights from big data to help them stay connected with their customer base on digital platforms like social media. They can use big data analytics to keep track of market and consumer trends and come up with services and solutions that have been tailor-made to meet individual needs. As a result, banks can become more engaged with their customers and create value for clients, which help enhance the overall customer experience.
3. Staying competitive
Data also gives banking and financial institutions an edge over competitors. These institutions can use data analytics to uncover peculiar trends and insights within customer data. Companies can then use the information from data analysis to create custom products and services and stay ahead of competitors.
For instance, banks and lending companies can use data analytics to identify internet users who are shopping around for a home. They can then reach out to such customers with attractive mortgage offers even before the customers comes looking for the rates. Anticipating the client’s needs not only leads to more business, but also fosters customer loyalty.
4. Predictive analytics for risk management
With banks and other financial institutions opening their doors to practically anyone, separating a serious or profitable customer from everyone else can be quite the challenge. Financial institutions like banks and credit companies like Creditrepaircompanies can use data and information from data repositories to determine if a customer is risk-worthy. So, instead of just showing everyone in, institutions are using subtle details like geographical information and form-filling habits to determine whether applicants will make good customers.
As an example, peer-to-peer lending platform Lending Club keeps track of details like your friends list on social media and how fast you complete an application to assess your risk-worthiness before giving you an account.
5. Fraud prevention
Financial crime and fraud have dogged the banking and financial industry for decades. In addition to the billions of dollars lost each year to banking fraud, banks, and other financial institutions have to contend with the heavy fines and sanctions imposed by regulatory agencies. To mitigate losses, financial institutions are increasingly using analytical tools on integrated data to help prevent fraud before it happens.
Banks are also using data analytics to identify and thwart internal threats posed by employees that act as precursors to financial crimes.
HSBC is among a growing number of banks that are using data analytics to monitor credit card activities in the U.S. As a result, the bank has managed to improve false-positive rates, fraud detection, and handling of fraud cases in branches across the country.
In many places, banks are the second-biggest hoarders of personal information after the government. With the right analytical tools, banks and other financial institutions have the power to usher in the next wave of disruptive innovation in the financial sector. With everything that is bound to change in this industry, we can only hope the wave comes sooner rather than later.
Check out this infographic for a closer look at the impact of big data on banking.